UBS AG financial advisers and some of its customers are being investigated by federal authorities for allegedly violating loan agreements and bank policies in Puerto Rico, the Swiss bank revealed in a filing yesterday.
In the financial services giant's second-quarter report, the bank indicated it was responding to requests from the U.S. Securities & Exchange Commission (SEC) and was also made aware of a U.S. Department of Justice (DOJ) criminal inquiry into the practice of the firm's customers and brokers using loans backed by securities to invest in more securities, which is prohibited by both the bank's internal policy and regulations.
The Financial Industry Regulatory Authority (FINRA) is also looking into the matter, which includes “supervision issues,” according to a bank spokesman. The spokeswoman also indicated the bank is cooperating with regulators.
The bank has been in hot water over Puerto Rican banking practices for several years, owing in part to the collapse of a once-thriving municipal bond market on the island. Declines in market prices of those bonds since 2013 have led to multiple regulatory inquiries, customer complaints and FINRA arbitration filings which so far have claimed damages exceeding $1 billion.
In the bond collapse aftermath, the bank conducted internal reviews, finding that one adviser in particular advised numerous customers to invest the proceeds of nonpurpose loans into a variety of closed-end securities, apparently the same individual and activities that are the subject of the regulatory agency investigations. UBS declined to name the individual being investigated in the quarterly report. While the focus for now may be one one large producer, most observers feel the probe will go much deeper as most of the UBS PR brokers were aggressively recommending closed-end municipal bond funds to their clients. A UBS spokeswoman declined to comment further on the matter.
Also in the quarterly report, UBS reported that its legal reserves fell to 2.37 billion Swiss francs ($2.46 billion) from the same period last year.
The experience securities fraud attorneys at Colling Gilbert Wright & Carter are actively investigating and filing FINRA arbitrations for losses associated with marketing and sale of UBS Puerto Rico proprietary closed-end bond funds. If you have lost money in one or more of these funds, contact our offices today for a free case evaluation.